Super tax: Opting for an easy way out.

The surprise government move to retrospectively impose an additional tax on the corporate earnings will significantly impact companies' profits from 2021-22.

The government last Friday announced a 10 per cent additional super tax on companies earning profits of over Rs300 million a year to boost its tax revenues.

The higher tax rate will cover firms from 13 industries and sectors, including banking, steel, aviation, automobile, cement, chemical, fertiliser, oil and gas, textile, fertiliser, beverage, sugar and tobacco companies, and LNG terminal operators.

The rest of the corporate sector will be subject to 4pc super tax and also cover export-oriented companies under the turnover tax regime.

It is a short-term measure that does not address the needed fundamental reforms

The measure drew immediate reaction from the corporate sector, with Overseas Investors Chamber of Commerce and Industry Chairman, and Engro Corp President and CEO Ghias Khan taking to Twitter to vent his dismay over the measure. 'Imposing a super tax on industries is regressive and will hamper industrialisation, curb manufacturing and not reduce the current account deficit. Pakistan needs a wider tax base through documentation, taxing unproductive sectors like real estate and long-term policy development.'

The Pakistan Business Council (PBC) said neither government nor the International Monetary Fund (IMF) has committed to fundamental reforms of the Federal Board of Revenue's (FBR) capacity to tax. 'Hence short-term, knee-jerk and front-ended revenue-seeking measures to tax the already taxed will compromise sustainable growth. No innovation. Pure expediency,' the PBC tweeted.

A Topline Securities note on the potential impact of the decision, which sent the stock market crashing downhill on Friday, says the one-time tax on large companies (under 10pc super tax) will have a 14pc impact (on their 2021-22 earnings).

Senior JS Global analyst Amreen Soorani wrote that the move to collect additional revenues to meet the enhanced tax target for the next fiscal year for securing the restoration of the IMF funding package will have a different financial impact on different sectors and companies.

The banks, already subject to a 35pc income tax compared to the rest of the corporate sector, will bear the brunt, with their earnings taking a hit of between 12.6pc and 15.4pc. The fertiliser companies will be affected equally by 9pc and cement manufacturers in the range of 7.6pc to 9pc. The...